Research On The Gambling Effect Of Chinese Stock Market

Traditional financial theory holds that investors only care about the return and risk of the investment portfolio,and do not have specific asset preferences.However,a large body of empirical research has shown that investors have a strong preference for holding lottery-type stocks,and that this results in underperformance of these stocks relative to non-lottery-type stocks.This market phenomenon caused by investors’ preference for holding lottery-type stocks is called “gambling effect” by academia.In this regard,related research based on behavioral finance theory has given a reasonable explanation,which believes that it stems from investors’ irrational preferences for skewness: investors will overestimate the probability of extreme events such as small probability of large gains in virtue of the optimism or bias of subjective probability,which leads to the overvaluation and lower future returns of the stocks with high skewness.At present,research on the gambling effect mainly focuses on the existence test and theoretical explanation of market effect,and there is relatively little research on which factors can affect gambling effect.To make up for the insufficient of current research,this paper studies the gambling effect from a new perspective of behavioral finance,that is investors’ heterogeneous beliefs.This paper selects all Chinese A-share stocks(excluding financial and ST shares)listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange from January 2,2003 to December 28,2018 as the research object,according to relevant theoretical and empirical research,and uses the portfolio spread method and the Fama-Mac Beth(1973)regression to study the impact of investors’ heterogeneous beliefs on the gambling effect and its heterogeneity under different market sentiments and short-selling mechanisms systematically.The specific research content and conclusions are summarized as follows:First of all,this paper conducts the one-sorted portfolio analysis based on gambling index,the 5 × 5 double-sorted portfolio analysis based on control variables and gambling index,and the Fama-Mac Beth(1973)regression for all stock samples to test the gambling effect of Chinese stock market.The test results show that there is an obvious gambling effect on Chinese stock market,that is,stock gambling characteristics have a significant negative correlation with future stock returns,and this negative correlation can not be explained by a series of pricing factors in previous literatures.Then,this paper conducts the 3 × 5 double-sorted portfolio analysis based on heterogeneous beliefs index and gambling index,and the Fama-Mac Beth(1973)regression adding the interaction between heterogeneous beliefs index and gambling index for all stock samples to test the impact of investor’s heterogeneous beliefs on stock gambling effect.The test results show that the greater degree of investor’s heterogeneous beliefs,the stronger stock gambling effect,and the impact of investor’s heterogeneous beliefs on stock gambling effect can not be explained by other pricing factors.After that,according to the level of market sentiment,this paper divides sample interval into the period of low market sentiment and high market sentiment,and conducts the Fama-Mac Beth(1973)regression on the stock samples in these two sample intervals respectively to test the heterogeneity of the impact of investor’s heterogeneous beliefs on stock gambling effects under different market sentiments.The test results show that Compared with the period of low market sentiment,the positive impact of investors’ heterogeneous beliefs on stock gambling effect is more obvious in the period of high market sentiment.Finally,this paper divides the stock samples from April 1,2010 to December 28,2018 into the group that is allowed to be shorted and another group that is not allowed to be shorted according to whether the stock is the subject of securities lending,and conducts the Fama-Mac Beth(1973)regression on the stock samples in these two groups to test the heterogeneity of the impact of investors’ heterogeneous beliefs on stock gambling effect under different short-selling mechanisms.The test results show that Compared with the stocks that are allowed to be shorted,the positive impact of investor’s heterogeneous beliefs on stock gambling effect is more obvious in the stocks that are not allowed to be shorted.The research content and conclusions of this paper widen the boundaries of research on the influencing factors of stock gambling effect,and provide evidence from Chinese stock market for the related theories of the gambling effect and the heterogeneous belief asset pricing theory.In addition,the research in this paper can help investors and regulators of Chinese stock market to understand the relationship between investors’ irrational factors and stock price behavior more comprehensively and deeply,which has certain guiding significance for promoting investors’ rational investment and perfecting the operation mechanism of Chinese stock market.